Minister of Natural Resources Joe Oliver.

Photograph by: THE CANADIAN PRESS/Sean Kilpatrick
, Postmedia News

OTTAWA — Canada risks stranding its resource bounty unless it adds new pipeline capacity to the West Coast, eastern provinces and the U.S., says Natural Resources Minister Joe Oliver, who believes the issue will be one of the biggest items on his plate in 2013.

But building new pipelines is anything but a sure bet. There’s strong opposition from citizens, some governments and environmental groups over transporting oilsands crude and other petroleum via pipelines such as the proposed Northern Gateway project to the B.C. coast and Keystone XL in the United States.

A glut of oil from multiple continental sources, including the Alberta oilsands, and inability to move it to market due to pipeline bottlenecks is resulting in large discounts for western Canadian crude compared to North American benchmark West Texas Intermediate and international Brent prices.

The price spread, for example, is costing Alberta $8.5 million a day in royalties — or more than $3 billion a year — and the entire Canadian economy nearly $20 billion annually, according to various estimates.

“It’s a real concern. It’s a growing concern,” Oliver said of the price spread, during a 2013 look-ahead interview with Postmedia News.

Oliver said he believes the Obama administration will soon approve the rerouted Keystone XL project. The pipeline would transport oilsands crude from northern Alberta to refineries on the Gulf Coast of Texas, as well as help alleviate a backlog of oil in the U.S. Midwest. The difficulty in moving North American crude to tidewater is causing it to trade at discounted prices compared to imports.

He also stressed the importance of a west-east pipeline system in Canada and for additional export capacity off the West Coast to move Canadian petroleum to Asian markets (the Northern Gateway oilsands pipeline is undergoing a regulatory review).

“The critical issue is to diversify the markets. If there was a game changer in 2012, it was a realization that diversification is utterly crucial,” Oliver added.

“We absolutely must be able to transport the resources to tidewater, and to do that, we need the infrastructure built — build the pipelines — and we’ve got to move not only west, but we’ve got to look at the east as well and hopefully the south also.”

Currently, a barrel of Western Canadian Select, which includes Canadian heavy conventional oil and bitumen crude, is worth slightly more than $60 — a discount of around $30 per barrel compared to the North American benchmark West Texas Intermediate (which is selling for about $92 US per barrel).

The gap is around $50 a barrel compared to the international Brent prices of approximately $112 US per barrel.

The price discount is costing provincial governments and petroleum producers billions of dollars annually, with some of the big banks pegging estimated losses to the Canadian economy at $18 billion or more a year.

The situation comes as a recent report from the International Energy Agency said the United States — Canada’s main energy customer — will become the world’s top oil producer by the end of the decade and eventually be energy self-sufficient over the next few decades.

At the same time, Oliver notes 99 per cent of Canada’s oil exports and all of its natural gas exports are going to the U.S., a trend that must change if Canada is to truly capitalize on its abundant natural resources and capture world prices.

“If that’s going to continue, it means we’ve got resources stranded. There’s an enormous amount at stake. So working on that is crucial,” he added.

Oliver also believes there’s momentum for a west-east pipeline network in Canada to get less expensive western Canadian crude to Ontario, Quebec and the Atlantic provinces, reducing the need for costlier imported oil and allowing petroleum producers to expand their customer base.

Most premiers between Alberta and Atlantic Canada appear onside with shipping western Canadian crude, including oilsands product, to Eastern Canada as long as the environmental challenges can be addressed, although Quebec must still be convinced.

“There’s real potential for moving it east,” Oliver said.

Andre Plourde, an energy economist and dean of the faculty of public affairs at Carleton University in Ottawa, noted the price differential (as a percentage) between bitumen and WTI has actually shrunk in recent years as U.S. refineries have transformed to deal with heavier crudes.

Nevertheless, he said Canada must find additional export capacity to deal with the expected hefty increase in Canadian crude oil production.

Current oilsands production of approximately 1.7 million barrels per day is expected to double by 2020 and possibly surpass four million barrels a day by 2025.

“We can’t increase production in the oilsands by two million barrels a day, give or take, without finding places to transport it,” Plourde said Thursday.

“Something has got to happen,” he said. “You have to find places to sell that oil and you’ve got to find ways of getting it there.”

However, a number of hurdles must be cleared to complete a west-east pipeline network, he said. The end point of the pipeline system would likely be the Irving Oil refinery in Saint John, N.B. — the largest refinery in the country — but one not easily equipped to deal with bitumen.

Enbridge is planning an expansion of its pipelines that carry crude from the oilsands and Bakken shale oilfield to refineries in Central Canada and the U.S. Midwest. The proposal involves reversing and possibly expanding a 240,000 barrel-per-day pipeline now carrying imported oil from Montreal to Sarnia, Ont.

Statistics Canada recently reported the spread in gasoline prices across Canada hit a 10-year high — with prices rising faster in Eastern Canada than in the West — largely due to what the agency called a “dual crude oil market” in the country.

Refiners in Western Canada use domestic crude oil and face prices closer to WTI, the North American benchmark. But refiners in Eastern and Central Canada use either imported crude oil, or a mixture of domestic and imported, and pay Brent prices, the global benchmark.

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